Authorized Capital

The Company is currently authorized to issue up to 8,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of convertible preferred stock, par value $0.01 per share, of which the following series have been designated: 4,500 shares of Series A, 1,000 shares of Series A-1, 4,000 shares of Series B, 400 shares of Series C-1, 2,000 shares of Series C-2, 110 shares of Series C-3, and 2,000,000 shares of Series D, 1,980,000 of Series F and 1,780 shares of Series G.

Common Stock

The Company is presently authorized to issue up to 8,000,000 shares of common stock, $0.001 par value per share, of which 5,798,281 and 3,120,795 shares of common stock were issued and outstanding as of December 31, 2017 and 2016, respectively. The holders of the Company’s common stock are entitled to receive dividends equally when, as and if declared by the Board of Directors, out of funds legally available.

The holders of the Company’s common stock have sole voting rights, one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock, currently including the Company’s preferred stock. The shares of common stock are not redeemable and have no preemptive or similar rights.

Equity Transactions (in whole dollars)

During the year ended December 31, 2017, the Company issued 9,181 shares of its common stock with a fair value of $125,000 for settlement of legal matters.

During the year ended December 31, 2017, the Company issued 221,511 shares of its common stock to individual investors, which resulted in net proceeds to the Company of $2,712,000.

During the year ended December 31, 2017, the Company issued 119,525 shares of its common stock with a fair value of $1,682,000 pursuant to consulting agreements.

During the year ended December 31, 2017, the Company issued 167,206 shares of its common stock with a fair value of $3,862,000 to employees under employment agreement for future services.

During the year ended December 31, 2017, the Company issued 371,234 shares of its common stock with a fair value of $3,552,000 to settle debt having an approximate value.

During the year ended December 31, 2017, the Company issued 10,951 shares of its common stock with a fair value of $183,000 to investor relation firm for services.

During the year ended December 31, 2016 the Company issued 5,029,000 shares of its common stock with a grant date value of $2,569,800 to several employees under the terms of their employment agreements, of which $2,305,040 remains unvested.

During the year ended December 31, 2016, the Company issued 3,809,389 shares of its common stock with a grant date value of $1,798,438 settle debt.

During the year ended December 31, 2016, the Company issued 841,500 shares of its common stock with a grant date value of $445,800 to consultants for services performed for the Company.

During the year ended December 31, 2016, the Company issued 7,594,999 shares of its common stock to individual investors for an equity raise totaling $2,628,000.

Preferred Stock

The Company is authorized to issue a total of 5,000,000 shares of convertible preferred stock with such designations, rights, preferences and/or limitations as may be determined by the Board, and as expressed in a resolution thereof. Each share of Series D and Series F Preferred stock is (a) entitled to vote alongside the common stockholders and has 20 votes; and (b) is mandatorily convertible into 400 shares of common stock (equal to 20 shares of common stock on a post-split basis upon an increase in the number of common shares authorized, and the implementation of a 1-for-20 reverse stock split). As of May 16, 2016, the Series D and F were converted into shares of common stock.

The following table presents the convertible preferred stock activity for the years ended December 31, 2017 and 2017.

Dividend charges recorded during the years ended December 31, 2017 and 2016 are as follows:

Accrued dividends payable at De included in accrued expenses at December 31, 2017 and 2016 are as follows:

Series A and Series A-1 Convertible Preferred Stock

The Company has designated 4,500 shares of Series A Convertible Preferred Stock (“Series A”) and 1,000 shares of Series A-1 Convertible Preferred Stock (“Series A-1”), of which 500 and 295 shares, respectively, are currently issued and outstanding. Holders of the Series A and Series A-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock at the rate of 10% per annum on the initial investment amount commencing on the date of issue. Such dividends are payable on January 1, April 1, July 1 and October 1 of each year, upon the declaration of payment by the Board of Directors.

The Series A and Series A-1 shares also contain a right of redemption in the event of liquidation or a change in control. The redemption feature provides for payment of a liquidation fee of 110% of the face value of the Series A shares and 125% of the face value of the series A-1 shares plus any accrued unpaid dividends in the event of bankruptcy, change of control, or any actions to take the Company private.

Series D Convertible Preferred Stock

The Company has designated 2,000,000 shares of Series D Convertible Preferred Stock (“Series D”), of which -0- and 1,980,000 shares are currently issued and outstanding as of December 31, 2017 and 2016. On May 26, 2016, each share of Series D was mandatorily converted to 20 shares of common stock after the effect of a 1-for-20 reverse stock split.

Series F Convertible Preferred Stock

The Company has designated 1,980,000 shares of Series F Convertible Preferred Stock (“Series F”), of which none were issued and outstanding as of December 31, 2017 and 2016, respectively. Each share of Series F was mandatorily converted to 20 shares of common stock after the effect of a 1-for-20 reverse stock split on May 26, 2016.

Series G Convertible Preferred Stock

The Board of Directors of the Company authorized the designation of a new series of preferred stock, the Series G Convertible Preferred Stock, out of its available “blank check preferred stock” and authorized the issuance of up to 1,780 shares of the Series G Convertible Preferred Stock. A Certificate of Designation was filed with the Secretary of State of the State of Nevada on December 4, 2017. The Series G Convertible Preferred Stock has various rights, privileges and preferences, including conversion into 100 shares of Common Stock (subject to adjustments) upon the filing of an amendment to the Company’s Articles of Incorporation incorporating a reverse stock split and the rights are junior and subordinate to any shares of Preferred Stock issued prior to this issuance.

Preferred Stock Transactions

During each of the years ended December 31, 2017 and 2016, the Company accrued an additional $80 of preferred stock dividends, respectively.

Subscription Receivable

During the year ended December 31, 2017, the Company issued 123,320 shares of common stock that were subject to certain vesting requirements, with a fair value of $3,044. As of December 31, 2017, and 2016, 247,351 and 269,000 shares that were previously issued to employees with a fair value of $4,300 and $2,829 remain unvested. Because these common shares are subject to forfeiture if the employees are no longer employed by the Company at the end of their employment agreements, their unvested value is carried in subscriptions receivable within stockholders’ equity. During the year ended December 31, 2017 and 2016, $1,573 and $327, respectively, of such amount vested and was reflected as stock compensation and $4,040 and $2,242 remained unvested as of December 31, 2017 and 2016, respectively.